Supply v demand

Bahrain’s oil sector is dominated by state-owned Bahrain Petroleum Company (Bapco), which is charged with the exploration, production, refining, marketing, and distribution of Bahraini oil for domestic use and the international market.

While the country is a net exporter of oil, it is the smallest Middle East oil producer by volume, and unlike other Gulf States, Bahrain exports refined petroleum products rather than crude oil. Domestically, the vast majority of Bahrain’s total energy consumption comes from natural gas, with the remainder supplied by oil.

In 2007, Bahrain produced an estimated 49 000 bpd of total oil liquids, of which 35,000 bpd was crude oil, 11,000 bpd was natural gas liquids, and 3,000 bpd was refinery gain. During 2007, Bahrain consumed an estimated 35,000 bpd of oil.

Hydrocarbons also provide the foundation for Bahrain’s two major industries: refining and aluminum smelting. With demand for energy rising and domestic production falling, It is very likely that the country will become increasingly dependent on oil and gas imports unless it can increase domestic production quickly.

Oil imports and exports

Unlike other Gulf States, Bahrain exports much of its oil in the form of refined petroleum products rather than crude oil. As of January 2008, its proven oil reserves stood at around 125 million barrels, all of which are located in the Awali field.

In addition to what is produced in its territory, Bahrain and Saudi Arabia share the 300,000 bpd of oil production from the offshore Abu Saafa field. Although half of the oil output is given to Bahrain, this figure is counted in Saudi production figures.

Separately, Bahrain also imports approximately 225,000 bpd of Arab light crude oil from Saudi Arabia via a subsea pipeline linking the two countries, which it refines for export at its Sitra refinery.

Bapco then refines this crude oil and exports much of it via tanker, with the majority of exports going to India and other Asian markets.

Natural gas

As well as an oil sector in need of refurbishment, Bahrain also has only modest natural gas reserves, and is looking to import natural gas supplies from neighboring countries in the coming years.

Bahrain’s proven natural gas reserves stood at 3.25 trillion ft3 as of January 2008, much of it associated gas from the Awali oil field.

The Bahrain National Gas Company (Banagas), established in 1979 was set up to capture associated natural gas at the Awali oilfield that had previously been wasted, and was formed with the primary objectives of processing the associated gas into marketable products as well as supply residue gas for local industrial use.

At present, most if not all of Bahrain’s natural gas production is used domestically, either in power plants, enhanced oil recovery (EOR) projects, or in heavy industry, where natural gas is used as a feedstock.

The largest domestic consumer of natural gas is Aluminum Bahrain (Alba) – the largest aluminum smelter in the world.

Offshore licensing round

Bahrain is in need of foreign investments, not only to amend the country’s ever-growing demand for energy but for its economic stability as well.

“Bahrain itself has become a major energy consumer in the region. As such, it is endeavoring to secure energy from a number of neighbouring countries on a long-term basis to ensure continual economic growth and industrial diversification and competitiveness,” said Dr. Abdul-Hussain Ali Mirza, the minister of oil and gas affairs and chairman of Bapco board committee, in a statement.
 

To encourage greater foreign investment in Bahrain’s upstream oil and gas sector, in March 2007 NOGA (Bahrain’s National Oil and Gas Authority) announced that it had opened a new licensing round for four offshore exploration and production (E&P) projects.

In February 2008, Thailand’s PTTEP and US Occidental were awarded exploration and production licenses offshore Bahrain.

PTTEP signed the exploration and production-sharing agreement (EPSA) for Block 2, where it committed to drilling at least 2 wells in the Khuff formation.

Occidental signed an EPSA for Blocks 3 and 4, where it committed to drilling 3 wells in the Arab formation.

Bahrain has become a major energy consumer in the region and is endeavouring to secure energy from neighbouring countries on a long-term basis to ensure continual economic growth. – Dr. Abdul-Hussain Ali Mirza, chairman of Bapco board

Exploration and production

Being one of the oldest oil-producing countries in the Persian Gulf, current crude oil production of about 35,000 bpd from the Awali field is well below peak production of 75 000 bpd in the 1970s.

To help offset the continuing declines in oil output, Bapco announced that it expects to drill 700 new wells at the Awali field between 2007 and 2015.

However, since experts put current domestic reserves at little more than 125 million barrels and 92 billion m3 of gas, the island urgently needs to acquire additional energy resources to sustain its industrial expansion.

While daily production peaked in 1970, there are now real expectations that the domestic production decline can be reversed with the help of foreign investment.

Bapco officials have said that they expect the drilling program to increase the field’s production capacity by 12,000 bpd, which is only likely to offset anticipated declines.

In November 2007, Bapco received 8 bids from international oil companies for a project to upgrade operations in the Awali field.

Bahrain has since compiled a short list of 3 international oil companies as potential partners for this onshore oil field project.

ExxonMobil, Occidental Petroleum and Denmark’s Maersk Oil – a final decision is expected by June 2008.

Bahrain’s oil minister said the country would add another 700 oil wells over the next 15 years to maintain and increase oil production.

As a result of greater natural gas requirements for power plants and domestic industry, natural gas demand in Bahrain is also expected to grow in the coming years.

To help meet rising demand, Bapco is leading an effort to increase the company’s natural gas supply by 500 million ft3, a huge 53 % increase from measured levels in 2004.

In 2006, Bapco approved plans to invest a reported US $200 million in drilling 10 new onshore natural gas wells.

Bapco also plans to introduce new natural gas production incrementally over the next several years; this includes the improvement of natural gas recovery rates at existing fields.

Energy conservation

In addition to companies investing in oil and gas exploration, Atlas Copco, manufacturers of compressors, construction and mining tools equipment with head offices in Manama, Bahrain, believes that energy conservation is the root to saving the country’s oil and gas sector.

“Improvements to Bahrain’s oil and gas industry could be made through protecting the environment from harmful emissions or waste, and working with a plan to implement energy conservation measures and improve the efficiency of its products and processes,” said Emile Bado, the regional general manger for Atlas Copco int he Middle East.
 

Being the first manufacturer to offer TÜV-certified (ISO 8573-1) 100% oil-free air compressors, according to Bado, several had since been delivered to major oil and gas companies all over Bahrain, providing “purity-critical compressed air applications such as instrumentation, eliminating the risk of contamination by even trace amounts of oil.”

Refining

In addition, Bahrain has 250,000 bpd of refining capacity at the Bapco-owned Sitra facility. However, industry figures show that in 2006 the Sitra plant ran at an average rate of 263,000 bpd, slightly higher than its nameplate capacity.

With demand for energy rising and domestic production falling, it is very likely that the country will become increasingly dependent on oil and gas imports unless it can raise domestic production.

Plans for the expansion of the 250,000 bpd Bahrain Sitra-refinery include laying new pipelines to import crude from Saudi Arabia.

“Due to the current high oil prices Bahrain is experiencing an increase in available investment for its oil and gas infrastructure requirements.

As a result of the application of new technologies, the domestic production of oil is anticipated to double in the future,” said Bado.

In light of such little refinery capacity, Bahraini oil officials agreed to invest both time and money in to developing the country’s infrastructure.

Earlier in 2007, Bapco and Saudi Aramco conducted a joint study into the long proposed project to build a new pipeline to transport Saudi crude oil to the refinery.

Reportedly, this aging pipeline will be decommissioned after the construction of the ‘New Arabia’ pipeline, a 71-mile, 350,000-450,000 bpd capacity feed running between Saudi Arabia’s Abqaiq oil processing center and Bahrain’s refinery at Sitra.

The pipeline will be built by local contractors, and is expected to come online at some point this year.

Bapco’s refinery modernisation also includes a US $685 million project to reduce the sulphur content of its diesel and kerosene.

In 2005, Foster Wheeler Italiana, an Italian subsidiary of the US-based Foster Wheeler Corporation, was awarded the US $112 million contract for a refinery gas desulphurisation project.

In 2007, the Low Sulphur Diesel Production (LSDP) facility at Bapco’s refinery was installed. This reduces the current high-sulphur content in Bapco’s diesel, enabling sales in the international market.

Eventually, it will produce 60,000 bpd, and is in line with the government’s aim of keeping up with the latest technological advancements in the sector.

“The growth of the oil sector and Bahrain’s economy, depends on successive economic upgrading in which the business environment evolves, hence supporting increasingly sophisticated ways of conducting business. This is primarily dependant on the devlopments of new technology,” said Ali Mirza.

“Innovation is one of the values for Bapco, in its pursuit to ‘strive for excellence’, he added.